Mid Year Tax Planning and Review
Individuals. As we enter into summer and the middle of the year this is the time for individual taxpayers to check on their income tax withholding as well as estimated income tax payments. Taxpayers should check their year to date pay stubs to see if they are on target as to having enough income tax withholding or estimated tax payments to offset projected income tax for the year. The taxpayer should project their income for the year and then compute their income tax based on that income. Then the projected income tax should be compared with the projected income tax withholding/estimates. If there are significant differences between the projected tax and the withholding/estimates then the withholding should be adjusted accordingly. Why this is important is that you want to maximize your withholding and estimated tax payments. You do not want a large refund nor do you want a large tax liability. The objective is to maximize your withholding by breaking even when it comes to filing your tax return.
Businesses. For businesses the middle of the year is also an excellent time to project income and taxes. Businesses should summarize their accounting at mid year and then project their income and taxes based on a reasonable basis of what the remaining year may look like. After projecting the income tax for the year the business owner should then compare the tax to estimated tax payments for the year. If there are significant differences between the tax and estimated tax payments then the estimated tax payments should be adjusted.
By projecting the income taxes for the year it will also allow the taxpayer to formulate a tax plan to minimize the projected income tax. It is important that all businesses go through this mid year planning and review process. This process is invaluable and will save the taxpayer potentially thousands of dollars and will also allow the taxpayer to make any relevant changes before the year end.